Commonly in business, two parties in different locations will require a transfer of funds as part of a business transaction. The funds are typically transferred using one of the following methods: physical check, fund transfer through an online bank, and electronic fund transfer (EFT) using a network for financial transactions (NFT). Each of these methods is described below.
If the funds a transferred using a physical check, the person sending funds to the recipient for goods or services typically mails a physical check to the recipient. Depending upon the method of delivery (e.g., regular mail, express mail, and/or other common couriers), the check may take a number of days to deliver. In the interim, the only surety the recipient has that payment will be made is the integrity of the sender; therefore, the recipient refrains from performing services or delivering goods until the check is received. Alternatively, the recipient performs before receipt of the check, but risks not receiving payment.
Online banks allow any person holding a credit card and/or a physical bank account to register with an online bank. After registration has been completed, the person is provided with an online bank account and may perform electronic transactions with any person other registered with the same online bank. With respect to transferring funds between parties, the online bank is able to electronically transfer funds from the physical bank account and/or credit cards into an online bank account. Further, the online banks are able to transfer funds between online bank accounts.
Similar to online banks, NFT provides an alternative to physical methods of payment. A NFT requires that the financial institutions involved in a NFT transaction (e.g., an EFT) be registered with the network. A NFT transaction is initiated by an Originator requesting authorization from a Receiver. Upon receipt of authorization from the Receiver, the Originator creates a NFT entry to be sent to the Originating Depository Financial Institution (ODFI). The entry is then passed to a NFT Operator, which upon receipt, sends the entry to the Receiving Depository Financial Institution (RDFI). Provided there are adequate funds in the ODFI and the entry is authorized, the RDFI will clear the transaction.